) is scheduled to announce its second quarter 2013 results on
November 14, 2012 and movements in analyst estimates indicate
some negative sentiment.
First Quarter Overview
NetApp reported unimpressive first quarter 2013 numbers, with
earnings per share (EPS) of 23 cents missing the Zacks Consensus
Estimate by 2 cents.
Revenue fell 0.9% from the year-ago quarter to $1.44 billion.
However, reported revenue was within the company's guidance
range. The year-over-year decrease was due to a decline in
Product revenue, which was a bit surprising given its solid
performances in the past quarters.
Both the Americas and the Asia-Pacific grew in the last quarter.
But this was offset by slowing demand from the U.S. federal
government and constrained European spending.
Weak revenues coupled with cost increases resulted in margin
Second Quarter Outlook
Keeping in mind the ongoing macro uncertainty caused by the
European debt crisis and federal budget cuts, management guided a
cautious yet positive second quarter.
NetApp expects revenues in the range of $1.5 billion to $1.6
billion, representing a 7.0% sequential growth and 3.0%
year-over-year growth. Non-GAAP gross margins are expected to be
in the range of 60.0-61.0%, while non-GAAP operating margins are
projected at roughly 13.5% (+/- 5.0%). GAAP EPS is expected to be
between 23 cents and 28 cents, while non-GAAP EPS is expected to
be between 45 cents and 50 cents.
Agreement of Analysts
Notwithstanding the prospects and importance of storage in
today's IT systems, most of the analysts expect NetApp to miss
its own revenue guidance.
This is supported by the fact that there has been no significant
improvement in the demand situation since the last reported
quarter. Weak U.S. enterprise and SMB (small and medium business)
demand and ongoing Euro concerns are taking a toll on NetApp
Though budget flush from the U.S. federal government could
provide some support, a few analysts contend that NetApp's
) is better positioned to capitalize on the opportunity.
On the other hand, some analysts believe that the positive trend
in accepting the latest iteration of ONTAP 8.1 (NetApp's
operating system) and close association with
Cisco Systems Inc.
) could act as catalysts. NetApp is collaborating with the two to
develop converged datacenter solutions. They are also positive
about the product refreshes, which could help demand for its
product to rise in the coming quarters.
Given the opposing arguments, it is not surprising that
estimate revisions were limited. The majority of analysts
preferred to maintain their estimates. Of the 13 and 14 estimates
available for the second quarter and fiscal 2013, respectively,
none were revised in the last 7 days. However, 1 and 2 estimates
for the second quarter and fiscal 2013, respectively were lowered
in the past 30 days to reflect analyst concern.
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Magnitude of Estimate Revisions
The magnitude of revisions has been minimal since the company
reported its first quarter results but reflected analyst
sentiment. The Zacks Consensus Estimate for the upcoming quarter
and fiscal 2013 slipped a penny to 33 cents and $1.45,
respectively over the last 7 days. However, we noticed a huge
decline of 8 cents and 9 cents, respectively in the estimates for
fiscal 2013 and 2014 over the last 90 days.
Though we are confident about NetApp's long-term growth
prospects, the company's lackluster second quarter guidance,
ongoing macro uncertainty caused by the European debt crisis and
overall IT spending patterns keep us on the sidelines.
We believe that NetApp will be able to hold its own in the
difficult operating environment and remain a key player in the
virtualization and network storage market based on product
launches and strategic acquisitions. With its latest Engenio
takeover, NetApp will now be able to address the video storage
market and also target high performance computing applications
like genomics sequencing.
NetApp shares carry a Zacks #4 Rank, implying a Sell rating in
the short-term (1-3 months).